Professional Documents
Culture Documents
The diagram shows a consumer's short-run and long-run demand curves for coconuts. Initially,
the consumer purchases quantity Q0 at price P0.
V
X
price P0
Z
W
Q0
quantity
If the price of coconuts increases from P0, the consumer's short-run response is greater than his
long-run response. If the price decreases from P0 his short-run response is smaller than his longrun response.
What is the consumer's short-run demand curve?
A
VYW
VYZ
XYZ
XYW
66
How would an economist establish the market demand curve for a private good?
13
mechanism, the
theeffect
effectofofaarising
risingprice
pricemust
mustbebetoto
13 For
For price
price to
to act
act as a rationing mechanism,
A by adding consumer surplus to total expenditure
attract
new firmsthe
theelasticity
market.
AAB attract
new
into
market. of individual demands
by combining
price
generate
additional
profits for
producers.
BBC generate
additional
for
producers.
by horizontally
combining
individual
demand curves
reduce
the quantity
some
CCD reduce
the
demanded
by
someindividuals.
individuals.
by multiplying
pricedemanded
by quantityby
demanded
signal the
the need for a reallocation
DD signal
reallocation of
of resources.
resources.
Other things being equal, which of the following would result in an increased demand by private
motorists
forfollowing
petrol (gasoline)?
14 Which
Which
of the
the
might explain
in in
14
of
following might
explain aa simultaneous
simultaneousincrease
increaseininboth
bothprice
priceand
andquantity
quantitytraded
traded
the
market
for
a
normal
good?
the
market
for
a
normal
good?
A an increase in the price of second-hand cars
7
the
removal
ofinan
an
effective
maximum
AAB the
effective
maximum price
priceon
onthe
thegood
good
anremoval
increaseof
road
toll charges
technological
progress
production
a reduction in
the pricein
steel
BBC technological
progress
inofthe
the
productionof
ofthe
thegood
good
CCD
DD
the
impositioninof
ofbus
a tax
on
a imposition
reduction
fares
the
a
tax
on the
the good
good
the
granting
of
a
subsidy
to
producers
the granting of a subsidy to producers of
ofthe
thegood
good
15 A financial investigation by a private firm finds that a new railway line would not be profitable.
15 A financial investigation by a private firm finds that a new railway line would not be profitable.
A cost-benefit analysis finds that the line is worth constructing.
A cost-benefit analysis finds that the line is worth constructing.
[Turn over
price
technological progress in the production of the good
P1
the imposition of a tax on theSgood
B
C
Difficult
MCQs
from
to
to
2009
D the
granting
of 2
a 003
subsidy
producers of the good
By:
Ali
Anwerzada
S1
2
Q3
Q1 Q2
O
15 A financial investigation by a private firm finds quantity
that a new railway line would not be profitable.
A cost-benefit
analysis
finds
that the
line
is worth constructing.
Bad
weather then
reduces
supply
to S
2S2.
What could explain this difference?
The government does not allow the price to rise above OP1.
A There are external costs not included in the financial investigation.
How much of the product will the government have to supply from a buffer stock if demand is to
be
B met?
There are external benefits not included in the financial investigation.
A higher
rate of B
interest
AC OQ
Q1Qis
C Q1Q2 analysis. D
1
3 used in cost-benefit
Cost-benefit analysis uses a higher estimate
8 for wage costs.
19
20
16
Q2Q3
Country X joins an existing customs union, comprising Y and W, which has a common external
The table
shows
levels
which three countries can produce.
tariff
equal
to following
X's the
initial
tariff.of output
Which
of the
statements
is correct?
After
joining theiscustoms
union,
X imports
from Yorwhich
it previously
country
25 tonnes
of maize
5 tractors
A Education
a public
goodXbecause
thecars
government
subsidises
schools.imported from country
V.
country
Y when
75 tonnes
of free
maize
or 15 tractors
B Healthcare is a public
good
provided
of charge.
How will this affect thecountry
price ofZcars225
in country
X
and
the
of producing the cars imported into
tonnes
of provided
maize orcost
45 the
tractors
C LawX?
and order is a public good because
it is
by
government.
country
D Street
lighting
is awould
publicbe
good
nooutcome?
one can be prevented from enjoying the benefits.
Which
of the
following
thebecause
most likely
price
cost of production
A Country X will specialise in maize and country Y in tractors.
lower
lower derive greater benefit from a good than consumers
17 AAgovernment
believes that consumers
B
Countryrealise.
Y will specialise in maize and country Z in tractors.
themselves
B
lower
higher
C Country Z will specialise in both maize and tractors.
Which
type
of
good
does
this
define?
C
no effect
lower
D There will be no gains from trade between the countries.
AD inferiorno
goods
effect
higher
B merit goods
21 A particular good in the Barbados market could be supplied by domestic producers, or producers
in
Tobago, or producers in the USA, at the following prices in US dollars:
C Trinidad
private&goods
superior goods
origin of production
price
Barbados
$1.00
9708/1 Jun03
$0.85
USA
$0.75
Originally Barbados had a 20 % ad valorem duty on imports from Trinidad & Tobago and the
9708/1 Jun03
[Turn over
USA.
Barbados then formed a customs union with Trinidad & Tobago, with a common external tariff,
also of 20 %.
From which countries would Barbados import the good, before the formation of the customs
union and after the formation of the customs union?
before
after
USA
USA
USA
neither
USA
neither
Difficult
CQs
from
2003
to
2009
D aM
rise
in the
value
of imports
By:
Ali
Anwerzada
23 Which of the following is a measure of labour productivity?
total output
A
quantity of labour employed
total cost
B
quantity of labour employed
total wage cost
C
quantity of labour employed
total profit
D
quantity of labour employed
Nov 2003
24 The average consumer divides his expenditure between food, accommodation and clothing in the
1 The steel required for the construction of a new car-assembly plant in a fully employed economy
ratio 5:3:2.
is obtained by increasing the output of the domestic steel industry.
During the course of a year, the price of food rises by 10 %, the price of accommodation remains
What is the opportunity cost of producing the steel?
constant and the price of clothing falls by 5 %.
2.5
B 4 % that would have
C 5been
% obtained by
D putting
6 % the steel to other uses
the%
alternative benefits
price
consumer
goods
W
Y
O
O
quantity
capital goods
9708/1 Jun03
[Turn over
C It is an inferior good.
What is meant by the ceteris paribus assumption?
D It takes a large proportion of consumer income.
B table
an assumption
consumers
act
rationally
The
shows thethat
price
elasticity of
demand
for four goods and services.
C
D
telephone calls
1.0
What is the outcome for consumers and workers as a result of increased division of labour?
football tickets
0.3
workers
0.0
W
Y
quantity
If the price is to be held at OP in year 2, how much must the government buy?
Difficult
MCQs
from
2B003
to
2009
A OY
XW
By:
Ali
Anwerzada
WY
XY
18 In a world economy there are two goods, guns and butter, and two countries, X and Y. Country X
can produce both guns and butter with fewer resources per unit than country Y, but country X has
a higher opportunity cost in the production of guns than country Y.
Which statement is correct?
A
9
9
19 What will be the immediate effect of the removal of tariffs on imported consumer goods?
19 What will be the immediate effect of the removal of tariffs on imported consumer goods?
A a decrease in the cost of living
A a decrease in the cost of living
B a decrease in free trade
B a decrease in free trade
C an increase in customs revenues received by the government
C an increase in customs revenues received by the government
D an increase in the level of domestic employment
D an increase in the level of domestic employment
9708/1 Nov03
June
2004
6
6
N
N
M
M
price
price
R
R
O
O
S
S
Q
Q
L
L
P
P
D
D
quantity
10
quantity
If thetable
rectangle
is equalof
in goods
area toXthe
which statement
is correct?
22 The
showsOLMN
the numbers
andrectangle
Y which OPQR,
two countries
produce. Each
country uses
If the
OLMN
is equal
in good.
area to the rectangle OPQR, which statement is correct?
half
of rectangle
its resources
to make
each
A Total revenue falls by MSQ if the price rises from OR to ON.
A Total revenue falls by MSQ if the price rises from OR to ON.
B Consumer surplus falls by RSMN if thecountry
price rises
OR 2to ON.
1 from
country
B Consumer surplus falls by RSMN if the price rises from OR to ON.
C The price elasticity of demand
in price.
goodisX unitary for
100all changes
300
C The price elasticity of demand is unitary for all changes in price.
D A rise in price from OR to good
ON results
in the
fall in quantity demanded.
Y
200same proportionate
400
D A rise in price from OR to ON results in the same proportionate fall in quantity demanded.
Later, each country specialises in the product in which it has a comparative advantage.
During a certain period, 10 000 units of a normal good are sold at a price of 20 c. During a later
c.eachgood
period,
12
000
units
are would
sold
atbe
aunits
price
Duringrate
a certain
period,
10 000
ofofa22
normal
aregains
sold at
a price
of 20 c. During a later
Which
of exchange
suitable
so
country
from
trade?
period, 12 000 units are sold at a price of 22 c.
What1Xcould
A
= 1Yexplain this change?
What could explain this change?
A 1X
a reduction
B
= 1.5Y in consumers' incomes
A a reduction in consumers' incomes
B 1X
an increase
in the cost of raw materials
C
= 2Y
B an increase in the cost of raw materials
C 1X
an increase
in the price of a substitute commodity
D
= 3Y
C an increase in the price of a substitute commodity
D an increase in the productivity of factors of production
D anan
increaseboth
in the
productivityand
of factors
of production
23 In
economy,
employment
unemployment
rose over a ten year period.
7
7
birth rate
life expectancy
unemployment benefits
working population
24 The diagram gives details of different aspects of productivity in the US and UK.
Which sector in the UK best fits the description a sector with a relatively fast growth rate in
productivity but which is less productive than its US equivalent?
productivity growth in the UK by sector, 1973-95
(% per annum)
UCLES 2004
agriculture
UCLES 2004
9708/01/M/J/04
9708/01/M/J/04
utilities
utilities
C manufacturing
manufacturing
A
B
money
value
rises
total
rises
expenditure
staysrises
constant
B
C
staysrises
constant
stays falls
constant
C
D
O
stays constant
stays
constant
falls
stays
constant
price
stays constant
stays constant
realrises
value
total
expenditure
price
25 When
The figures
show thein
consumer
a country.
(1971 = 100)
C price index
D
26
will a reduction
unemployment
result(CPI)
in anofincrease
in inflation?
26 When will a reduction in unemployment result in an increase in inflation?
A when a high percentage of the increase in income is saved
CPI
A when a high percentage of the increase in income is saved
B when the economy reaches its production possibility curve
total
total
1998
200
B when expenditure
the economy reaches its production possibility
curve
expenditure
C when the jobs created are unskilled
1999
204
C when the jobs created are unskilled
D when the newly employed buy mainly imported goods
2000
206
O
O
D when the newly employed
buy mainly imported goods
price
price
2001
209
Nov
2004
27 The table gives information about the trade between Singapore and New Zealand during 2001,
8 the
Thefirst
cross-elasticity
of demand
between
two between
goods
willSingapore
beThe
higher
year
they
signed
free
trade
agreement.
values
are given
both
in Singapore
27
The
table
gives
information
about
the trade
and New
Zealand
during
2001,
What
can
beafter
deduced
from
theadata?
the first(S$)
yearand
after
they
signed dollars
a free (NZ$).
trade agreement. The values are given both in Singapore
dollars
New
Zealand
A the(S$)
greater
the difference
in price(NZ$).
between the two goods.
dollars
and New
Zealand dollars
A There was
hyperinflation
between 1971 and 1998.
percentage change
B the greater the income elasticities of demand
goods.
mthe two
NZ$
m percentage change
S$for
B The rate of inflation rose in 2000.
from 2000
NZ$
m
C the greater the price elasticities of demand S$
formthe two
goods.
from 2000
C The rate of inflation in 1999 was 4 %.
Singapore exports to New Zealand
508
618
+20 %
D the
more they
are regarded
as similar by consumers.
exports
to New inflation
Zealand
508 years down
618 to the end+20
%
D Singapore
The country
experienced
in the three
of 2001.
Singapore imports from New Zealand
331
403
17 %
Singapore imports from New Zealand 10 331
403
17 %
What
can be concluded
from the
table?
29
A
depreciation
of the
exchange
of of
the9708/01/O/N/04
pound
sterling
thebalance
US dollar
from 1[Turn
: $1.50
to
2004
over
26UCLES
What
is the
likely
consequence
an
increase
in a against
countrys
of payments
deficit?
What
can
be most
concluded
from
therate
table?
1 : $1.00 must mean that
A New Zealand gained more than Singapore from the trade agreement.
an increase
the foreign
valueSingapore
of the currency
of trade
the country
AA New
Zealand in
gained
more than
from the
agreement.
A
will betrade
undervalued.
B the
Newpound
Zealands
position with Singapore improved in 2001.
an increase
in trade
the level
of income
within theimproved
country in 2001.
BB New
Zealands
position
with Singapore
B
imports had
fromathe
UKsurplus
will become
moreZealand
expensive.
C US
Singapore
trade
with New
in 2001.
a reduction
in athe
quantity
of money
within
the country
CC Singapore
had
trade
surplus
with New
Zealand
in 2001.
C
fromrate
theinUS
will was
become
cheaper. NZ$ 1 = S$ 1.2.
D UK
Theimports
exchange
2001
approximately
a reduction
inrate
unemployment
the country
DD The
exchange
in 2001 waswithin
approximately
NZ$ 1 = S$ 1.2.
D dollars will become more expensive in terms of pounds.
A 2004
an increase
in country Xs demand9708/01/M/J/04
for
imports
UCLES
UCLES
2004
9708/01/M/J/04
B an increase in country Xs interest rate
[Turn
over
[Turn
over
Difficult
CQs
from
003
o
2for
009
C M
Demand
for Y 2
will
fall tand
Z will rise.
By:
Ali
Anwerzada
Demand for Y will rise and for Z will fall.
June
2005
10 The diagram shows the supply and demand curves for a product.
The government imposes an indirect tax on the 5
product.
S2
S1
price
price
D1
D2
quantity
quantity
What will be the outcome of this for the producers revenue and the incidence of the tax burden?
What would cause the change in the market equilibrium position from X to Y?
effect on revenue
consumer
fall
producer
fall
rise
8consumer
D
rise
producer
20 Why would a government introduce tariffs and quotas?
12 A
The to
market
demand
equation
for a good
is given by Qd = 310 - 20 p
increase
the level
of international
competition
and the supply equation by Qs = 10 + 10 p,
B to increase the demand for where
home-produced
p denotesgoods
the price of the good.
C
10
15
20
21 In some parts of the world economic unions have been established. These have introduced a
currency. for consumer surplus to be zero?
13 common
What is necessary
What
could beisanperfectly
economic
disadvantage of introducing such a common currency?
A Demand
inelastic.
UCLES 2005
9708/01/M/J/05
A
B
Absolute
comparative
cost advantages would disappear as a basis for trade.
Demandand
is perfectly
elastic.
B
C
Devaluation
of a members
currency would no longer be possible.
Supply is perfectly
inelastic.
C
D
Prices
and elastic.
services would be the same over the whole union.
Supplyofisgoods
perfectly
the relationship between average import prices and average export prices.
the rate at which domestic currency can be sold in foreign exchange markets.
the difference between the value of exports and the value of imports.
UCLES 2005
9708/01/M/J/05
[Turn over
9
23 The chart shows changes in employment by sector for a country between 1998 and 2003.
23 The chart shows changes in employment by sector for a country between 1998 and 2003.
6
6
4
4
2
tertiary
2
% change in
0
tertiary
employment
% change in
primary
secondary
0
employment
2
primary
secondary
2
4
4
6
6
Which statement about the period 1998 to 2003 must be true for this country?
Which statement about the period 1998 to 2003 must be true for this country?
A The primary sector lost more workers than the secondary sector.
A The primary sector lost more workers than the secondary sector.
B Unemployment stayed constant.
B Unemployment stayed constant.
C Employment in service industries increased.
C Employment in service industries increased.
D There was no change in the total working population.
D There was no change in the total working population.
24 The table shows the share of a workers income spent on three classes of good and the
change the
in the
prices
goods over
a year.
24 percentage
The table shows
share
of ofa the
workers
income
spent on three classes of good and the
percentage change in the prices of the goods over a year.
share of income change in prices of
spent
goods
goods
share on
of income
change
in prices of
spent on goods
goods
1
clothing
+25 %
41
clothing
+25 %
4
1
food
+50 %
21
food
+50 %
2
1
fuel
-25
%
41
fuel
-25
%
4
Over the same period the workers money income rises by 25 %.
Over the same period the workers money income rises by 25 %.
What happens to the workers real income?
What happens to the workers real income?
A It falls by 25 %.
A It falls by 25 %.
B It falls by 50 %.
B It falls by 50 %.
C It rises by 25 %.
C It rises by 25 %.
D It is unchanged.
D It is unchanged.
UCLES 2005
UCLES 2005
9708/01/M/J/05
9708/01/M/J/05
[Turn over
[Turn over
Difficult
MCQs
from
2003
to
2009
D The value of money rose.
By:
Ali
Anwerzada
11
11
27 What
What
combination
is
likely
cause
aasurplus
ininaacountrys
in in
goods
and
services?
27
is most
most
likelyisto
tomost
cause
surplus
countrystrade
trade
goods
and
services?
26
Whichcombination
combination
of
events
likely
to cause
inflation?
inflation
inflation
exchange
rate
A
A
A
B
B
B
C
C
C
D
D
D
currency
currency
direct
taxes
money supply
high
high
falling
strong
strong
falling
high
high
falling
low
low
rising
weak
weak
falling
strong
strong
rising
rising
low
low
rising
weak
weak
rising
falling
falling
rising
28 The demand for US imports in Japan is price-inelastic.
28 The demand for US imports in Japan is price-inelastic.
Assuming there is no change in their dollar price, what would be the effect of a depreciation in the
Assuming
is no change
in their
dollar price,
what would be the effect of a depreciation in the
yen on thethere
total value
of US goods
imported
into Japan?
yen on the total value of US goods imported into Japan?
value
valuein yen
measured
measured in yen
A
decrease
A
decrease
B
decrease
B
decrease
C
increase
C
increase
UCLES 2005
D
increase
D
increase
value
valuein $
measured
measured in $
decrease
decrease
increase
increase
decrease
decrease 9708/01/M/J/05
increase
increase
29 The British monetary authorities are committed to maintaining the exchange rate of the UK
the diagram.
against
the Euro
between
P1 and Pare
29 The
British
monetary
authorities
to maintaining the exchange rate of the UK
2 on committed
against the Euro between P1 and P2 on the diagram.
S
P2
price of
P2
(in
Euros)
price
of
(in Euros)P1
P1
D2
D1
quantity of
D2
D1
O
quantity of
What might they do if demand changes from D1 to D2?
What
might they
do ifon
demand
changesoverseas
from D1 to D2?
A impose
controls
UK investment
A
B
impose
UK investment overseas
increasecontrols
interest on
rates
C
B
sell Eurosinterest
out of foreign
increase
rates exchange reserves
D
C
sell Euros
on the
exchange
markets
sell
outforeign
of foreign
exchange
reserves
D sell on the foreign exchange markets
UCLES 2005
9708/01/M/J/05
9708/01/M/J/05
UCLES 2005
[Turn over
[Turn over
Difficult
MCQs
from
2003
to
2009
shares
C the
market
value
of a companys
By:
ADli
Aword
nwerzada
processing software used by a writer to complete her new book
Nov
2005
4
The workers in a factory currently earn $240 for a 40-hour week. The management offers them a
choice between either a 10 per cent wage increase or an increase in the weekly wage to $260
along with a reduction from 40 to 39 hours.
Disregarding the value of leisure time, what is the opportunity cost to each worker of opting for
the 39-hour week?
A
$4
$6
$20
8
$24
18 The diagram shows the demand curve for an agricultural commodity that has unitary elasticity. S1
UCLES
is the2005
supply curve if there is a bad harvest9708/01/O/N/05
and S2 is the supply curve if there is a good harvest.
S1
S2
price
P
D
O
10
quantity
23 The table shows the number of workers and the annual output of an industry.
Workers in 000s
Output in $m
year 1
year 2
year 3
120
130
100
12.00
14.30
13.00
24 The table shows the weights used over three years in the UK consumer price index.
10
food
2001
2002
2003
116
114
109
13 The diagram shows the demand and supply curves for parking spaces in a hospital car park.
S
12
28 Why is a balance of payments deficit a potential problem for an economy with a fixed exchange
rate?
price
P
A Domestic money supply will increase.
B
The managers decide to rely on the price mechanism
to
allocate
parking
spaces
at
the
hospital
2
most
29 In
the effectively.
diagram the foreign exchange market is3initially in equilibrium at X.
June
2
006
D
30 Which policy would be most likely to reduce a balance of payments current account deficit?
15
use of
cost-benefit
analysis
should
outcome
where
6 Correct
What is most
likely
to increase
the demand
forproduce
compactan
disc
players?
A reducing income tax rates
A asocial
are minimised
A
fall incosts
disposable
incomes and social benefits are maximised.
M
P
O
B reducing subsidies to domestic
industriesgood Y
in excess
of social costs.
B asocial
fall inbenefits
the priceare
of cinema
tickets
C reducing the external value of the currency
What
might
cause
theof
curve
to equal
shift
tomarginal
NP?
private
benefits
social benefits.
C
amarginal
fall
in the
price
compact
discs
D reducing the level of tariffs
A amarginal
technological
progress
D
fall in thesocial
price
of video recorders
benefits
equal marginal social costs.
B
unemployment of resources
The
elasticityofofnatural
demand
for good X is 1. At a price of $12, quantity demanded is 4000 units.
C price
the depletion
resources
D awill
reallocation
of resources
What
be the price
when the quantity demanded is 20 000 units?
A $2.00
B $2.40
C $2.66
D $20.00
A government proposes to introduce a road congestion charge which would require private
motorists to pay a toll for road use.
Which statement relating to the proposal is normative?
Permission
reproduce
items where third-party
owned material
protected
by copyright
is included has been sought and cleared where possible. Every
A to Bus
passengers
will benefit
at the
expense
of motorists.
reasonable
holders, but if any items requiring clearance have unwittingly been included, the
UCLES effort
2006has been made by the publisher (UCLES) to trace copyright
9708/01/M/J/06
publisher will be pleased to make amends at the earliest possible opportunity.
Motorists with higher incomes will be prepared to pay the charge in return for reduced
University of Cambridge International Examinations is part of the University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department
journey times.
of the University of Cambridge
C 2005
Motorists
UCLES
D
The proposal will be unfair to motorists who have no alternative means of transport.
11
It is non-excludable.
Difficult
MCQs
from
2003
to
2009
D There is rivalry in its use.
By:
Ali
Anwerzada
17 The diagram illustrates a market for wheat. The government sets a maximum price of OP.
S
P
price
D
10
quantity
24 The
percentage
forthe
a country's
Whattable
couldshows
causethe
theyear-on-year
maximum price
to have anchanges
impact on
market? consumer price index from
1999 to 2005.
A an increased wheat harvest
year
% change
18.0
2000 9
an increase in subsidies to wheat farmers
11.7
8.6
21 The table refers to a particular country.2001
18 A government wishes to encourage the2002
consumption 4.6
of a merit good and reduce the consumption
of a demerit good.
index of import
index of export
2003
4.9
prices
prices
year
Which policy should it adopt towards
each=good?
(2000
100)
(2000 = 100)
2004
6.1
merit
1995good
48.1
2005
4.5
demerit
57.0 good
2005price
122.4 produce only in
120.8
A impose a minimum
the public sector
Which statement about the price level is correct?
B increase advertising on the benefits of put legal controls on output
Which statement about the period 1995 to 2005 is correct?
A It fell
theover
goodthe first half of the period.
A
balance
of trade
improved.
confine
access
to at
certain
age groups
tax output
B C The
It was
at its
highest
the start
of the period.
B
balance
of payments
worsened.
subsidise
the
good
set a minimum level of output
C D The
It was
at its lowest
at the end
of the period.
C
D
D
[Turn over
12
11
exchange rate
increase
appreciate
increase
decrease
depreciate
price
appreciate
decrease
depreciate
M
N
2 and Euros () which exchanged for one pound
28 2The
diagram shows the numberOof US dollarsquantity
($)
Nov
006
1
27
B
B
1.7
a decrease
costs of producing X
Free
goods in
arelabour
non-excludable.
C
C
a decrease
thefree
demand
The
demandinfor
goodsfor
is X
infinite.
1.6
D
D
an increase
the price
substitutetogood
The
supply ofinfree
goodsofisa sufficient
satisfy all demand at zero price.
1.5
1.4economy
From is
the
table below,
in which
price range
is in
demand for product X inelastic?
What
present
in a mixed
but not
pera planned economy?
1.3
capital goods
private
production
$ exchange
rate
against
product X
2002
2003
2004
B consumer surplus
price
quantity demanded
$ of the $ against the and during this period?
What
happened toborrowing
the exchange rate
C government
12
$ exchange rate
11
against
250
450
10 if
InAeconomics
a statement is positive
appreciated
appreciated
500
9
600
appreciated
A B it assumes
current economicdepreciated
conditions
remain unchanged.
8
650
depreciated
appreciated
B C it concerns
the factual outcomes
of an economic action.
depreciated
depreciated
AD it$12-11
B $11-10of
C $10-9
D $9-8
C
examines
the desirability
government
economic policy.
Which
of money
Which characteristic
describes product
R? is essential, if it is to be used as a medium of exchange?
A
B
It must be durable.
income elasticity of demand
It must be legal tender.
C A It must be limited
in supply.
negative
positive
positive value.
D B It must have intrinsic
negative
C
negative
negative
9708/01/M/J/06
[Turn over
The
market
demand
for
a
product
is
made
up
of
the
demand from three firms, X, Y and Z.
D
positive
positive
UCLES 2006
The table shows the demand from each firm and the market supply.
UCLES 2006
9708/01/O/N/06
[Turn over
market supply
13
price $
demand from X
demand from Y
demand from Z
3300
3300
3300
3300
3100
2900
3100
6200
41
13
28
44
12
25
32
37
28 Turkey can produce a good but also imports some of the good from Egypt. The Turkish currency
depreciates against the Egyptian currency.
How might this affect production of this good in Egypt and in Turkey?
production in Egypt
production in Turkey
decrease
decrease
decrease
increase
increase
decrease
increase
increase
11
29 The diagram shows the supply and demand for pounds sterling () in the foreign exchange
market with the initial US dollar ($) price of the being OP1.
$ price
of
P2
P1
D2
D1
O
UCLES 2006
Q1
Q2
9708/01/O/N/06
quantity of s
4
a speculative sale of s in the foreign exchange
market
7 A businessman had intended to borrow $5000 at 8 % per year for house purchase. When the
decided to borrow
$4000. of the external value of a countrys
rate
10 % hecircumstances
30 interest
In which
of rose
the to
following
will only
devaluation
currency have the greatest beneficial effects on its balance of trade?
Within what range is his interest elasticity of demand for loans?
A There is full employment in the country.
A
0.0 to 0.3
B The government has implemented expansionary fiscal policies.
B 0.4 to 0.7
C The demand for its imports is price-inelastic.
C 0.8 to 1.2
D There is a high price elasticity of demand for its exports.
D 1.3 to 1.7
if labour is immobile.
if unemployment is low.
14
19 The diagram shows the amounts of wheat and clothing that can be produced in countries X and Y
with a given quantity of resources.
100
country9X
22 The table shows the balance
for four items in a countrys current account for two years.
units of
wheat 50
visibles
invisibles
income
transfers
year 1
72
84
24
46
31000
44
units of clothing
What can be concluded about the changes between year 1 and year 2?
What does the diagram indicate about the production of these two commodities?
A Income has moved from a net inflow to a net outflow.
A Both countries have an absolute advantage in the production of clothing.
B The difference between the value of exported and imported services has increased.
B Both countries have a comparative advantage in the production of clothing.
C The value of exported goods has fallen.
C Country X has a comparative advantage in wheat and an absolute advantage in clothing.
D Transfers into the country have increased.
D Country Y has both an absolute and a comparative advantage in clothing.
year 2
87 0
country
Y
12
200
23 Company X reduces its workers from 250 to 200 and as a result its output decreases from 5000
4800 method
units perofday.
20 toWhich
protection would a government be most likely to use to increase the countrys
10
exports?
Company Y increases its workers from 800 to 1000 and as a result its output increases from
A
exchange
control
to 2200
units
perisday.
25 2000
Which
combination
likely to result from demand-pull inflation?
B quotas
What
happens to labour productivity of the workers in the two companies?
balance of trade
subsidies
company X
A
D tariffs worsening
AB
falls
improving
profits
company
risingY
rises
rising
B C an
increase
interest
rates
Which
country
had in
a 20
higher
of unchanged
inflation in year 2 than year 3?
increased
% rate
C D an increase
in labour productivity
unchanged
decreased
%
country
year 2 index
year 3 20
index
an increase in taxes on imports
D
A
100
115
110
132
27 In which situation must a countrys balance of trade in goods and services improve?
120
144
A D Export orders
rise more than import
130
150orders.
B
UCLES 2007
9708/01/M/J/07
15
28 According to the Purchasing Power Parity theory, what determines the rate of exchange between
UCLES 2007
9708/01/M/J/07
[Turn over
two countries?
11
30 A country with a freely floating exchange rate has a persistent deficit on the current account of its
balance of payments.
Which policy can be used to correct this disequilibrium?
A
Nov
2007
1
Some people are shipwrecked on a tropical island and allocate their time between gathering
coconuts and fishing. Each individual is equally productive in collecting coconuts or catching fish.
Which diagram represents the production possibility curve of this community?
9
2
fish
coconuts
coconuts
coconuts
coconuts
fish
fish
fish
A and
when
calculating
the retail and
prices
indexand beeswax are in joint supply.
10 Jam
honey
are substitutes
honey
B when
what to
include
in athe
cost
benefit
analysis
Other
thingsdeciding
being equal,
what
will be
result
of an
increase in the price of jam?
when making normative statements to advise the government
price of honey
price of beeswax
D when studying the effect of a price rise on demand
A
fall
fall
C
11 The number of passenger journeys per week by train on a certain route is shown by the demand
relative use decreased relative use
curve in increased
the diagram.
UCLES 2007
9708/01/M/J/07
labour
and land
enterprise and
V labour
labour and
land
fare
P
W
16
demand
fall
rise
rise
fall
Difficult
D MCQs
from
rise 2003
to
2009
rise
By:
Ali
Anwerzada
11 The number of passenger journeys per week by train on a certain route is shown by the demand
curve in the diagram.
7
T
W
U
18 Brazil and Colombia attempt to control the supply of coffee in the
world market to help stabilise
demand
their incomes.
fare
19 Country X has a comparative advantage in producing wheat and country Y in producing cars.
However, the countries choose not to specialise and trade.
What is a valid reason for this behaviour?
A
The exchange rate lies within the countries opportunity cost ratios.
UCLES 2007
9708/01/O/N/07
9
Transport
costs are high
relativeinflation
to the opportunity
differences
between
the countries.
25 DA country
experienced
an annual
rate of 4 % cost
for three
successive
years.
25 A country experienced an annual inflation rate of 4 % for three successive years.
Which statement is correct for the three-year period?
20 What would be an economic benefit to a country of imposing a tariff on imported goods?
Which statement is correct for the three-year period?
A The price level rose by 12 %.
A It would increase global productivity.
%. than 12 %.
A The
The price
price level
level rose
rose by
B
by 12
more
B It would make the countrys exports more competitive.
B The price level rose by more than 12 %.
C The real value of money rose by 12 %.
C It would put pressure on foreign suppliers to reduce their prices.
C The real value of money rose by 12 %.
D The real value of money rose by more than 12 %.
D It would reduce the prices paid by consumers for imported goods.
D The real value of money rose by more than 12 %.
Whatmust
would
beterms
likelyoftotrade
decrease
inflationchange?
in an economy?
2126 When
the
of a country
26 What would be likely to decrease inflation in an economy?
an increase
in consumer
AA when
the volume
of exportsspending
falls and the volume of imports rises
A an increase in consumer spending
B
an
increase
in
employment
B when the total value of exports falls and the total value of imports rises
B an increase in employment
an increase
in labour
productivity
CC when
the balance
of trade
moves from deficit to surplus
C an increase in labour productivity
D
an
increase
in
taxes
on
imports
D when the average price of exports rises and the average price of imports falls
D an increase in taxes on imports
A
A
B
B
C
immediate effect
effect
onimmediate
financial account
on financial account
credit
credit
credit
credit
debit
subsequent effect
subsequent
effect
on
current account
on current account
credit
credit
debit
debit
credit
17
11
2.5
price of
in US$
2.0
D
20
25
30
quantity of s
(billions)
What must the UK government do to achieve an exchange rate of 1 = US$2.50?
A
D sell
20 billionpolicy
sterling
13 Which
government
might limit the rationing function of the price mechanism?
A the imposition of tariffs on imported consumer
4 goods
June
2008
8
income
($)for rented
colahousing
(cans)
the setting of maximum
prices
50
nuts (packets)
0
Which
about income
elasticity
demand over the range of income shown is true?
A
toostatement
much consumption
and too
much of
production
A
B
For much
cola itconsumption
is less than 1.
too
and too little production
B
C
For little
colaconsumption
it is greater than
too
and 1.
too little production
C
D
For little
nutsconsumption
it is greater than
1. much production
too
and too
15 An increase in tuition fees paid by students has no effect on the number of students entering
higher education.
9 What would increase the price elasticity of supply of a firms products?
What
be theineffect
on theofprivate
ratestocks
of return
obtained
A a will
decrease
the period
time that
can be
kept by students from higher education
and on the social rate of return to society as a whole?
B a decrease in the time that it takes to produce the products
private rate of return
social rate of return
C an increase in the cost of capital goods employed by the firm
decrease
increase
D A an increase
in the level of employment
in the area
B
decrease
uncertain
increase
increase
10 InCthe diagram,
the supply curve shows
the number of spaces in a car park and the demand
curve shows the demand for spaces on four different days.
D
increase
uncertain
UCLES 2007
9708/01/O/N/07
16 The government has to choose the best one of four possible sites to locate a port.
P4
The benefits and costs of each
P3 site are shown in $m in the table.
D4
price
P2
Which site would be chosen?
D3
P1
D2
18
if the exports were produced profitably at a low price in the exporting country
if the exports were the result of a surplus caused by favourable weather conditions
if the exports were the result of improved technology that led to capital-intensive production
9
D if the exports were the result of government subsidies to producers that made loss-making
9
23 Thesales
chartprofitable
shows changes in employment by sector
for a country between 2000 and 2006.
C
4
2
D
% change in 2
0
employment
% change in
0
P
employment
2
price
P1
2
P2
4
S
domestic supply
tertiary
tertiary
primary
secondary
primary
secondary
world supply with tariff
world supply without tariff
4
6
domestic demand
O
6V W X Y Z
Which statement about the period 2000 to 2006 must be true for this country?
quantity
Which
statement
about the
2000 to 2006
must
be true forsector.
this country?
A
The
primary sector
lostperiod
more workers
than the
secondary
AA aThe
reduction
of sector
WV lost more workers than the secondary sector.
primary
B Unemployment
stayed constant.
BB aUnemployment
reduction of XVstayed constant.
C Employment in service industries increased.
C a reduction of XW
C There
Employment
serviceinindustries
D
was noinchange
the total increased.
working population.
D a reduction of ZY
D There was no change in the total working population.
24 A countrys Consumer Price Index increased from 100 to 200 over a five-year period.
22 Which item is recorded in the financial account of a countrys balance of payments?
24 A countrys Consumer Price Index increased from 100 to 200 over a five-year period.
What can be deduced from this?
A a receipt of a gift of cash from abroad
What can be deduced from this?
A The economy experienced creeping inflation.
B a receipt of a subsidy from abroad
A The
The standard
economy of
experienced
creeping inflation.
B
living halved.
C a receipt of interest from abroad
B The cost
standard
of living
halved.
living
felllong-term
by
50 %.investment from abroad
DC aThe
receipt ofoffunds
for
%.
C
The
cost
of
living
fell
by
50
D The purchasing power of money
halved.
D
UCLES 2008
9708/01/M/J/08
19
11
27 In 2004, when international demand for oil was high, Bolivia encouraged investment by foreign
5
firms in order to exploit its oil and gas resources,
mainly to improve its balance of payments
position.
10 The table shows changes in a consumers expenditure on various goods when his income
What
impact
would
on000.
the balance of payments of Bolivia?
increases
from
$20 this
000have
to $24
definitely favourable, as Bolivia could increase its exports of gas and oil
income
income
definitely unfavourable, as the foreign
would
transfer profits out of the country
$24 000:
$20 companies
000:
good
amount
spent
uncertain, as there would
be inflows
andspent
outflowsamount
of currency
on good
on good
12
zero, as Bolivia itself would use the gas
($) and oil produced
($)
A
B
C
D
D
balance of trade
services
A the
W only
B Zinonly
C W and Z only D W, Y and Z
29 The table shows observations of the exchange rate of an economy and its current account
June
balance
2009
over six years.
11 The diagram shows a countrys domestic supply of, and demand for, a commodity that it both
consumes and exports.
exchange rate
current account balance
year
(US dollars per unit
(billions of US dollars)
of domestic currency)
2.0
3 S
1.5
1.5
1.5
1.5
0 D
1
2
3price
WP2
WP1
1.5
W
Y
Which concept does the data in the table illustrate?
quantity
+3
Z
domestic consumption
trade-weighted
exchange rates quantity of exports
OX to OZ
OY to OX
OX to OZ
OY to OZ
OY to OW
YX to WZ
OY to OW
YX to OZ
UCLES 2008
UCLES 2009
9708/01/M/J/08
[Turn over
9708/01/M/J/09
[Turn over
20
Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
18 The market price of an agricultural commodity was so low that the government fixed a minimum
price for it above the market equilibrium price. However, the government did not buy any of the
commodity itself.
What would happen as a result?
A
There would be an equilibrium in the market but the change in farmers incomes would be
uncertain.
There would be a shortage on the market and farmers incomes would rise.
There would be a surplus on the market and farmers incomes would fall.
There would be a surplus on the market but the change in farmers incomes would be
uncertain.
9
20 Japan introduces import quotas on consumer durables imported from Malaysia. These goods
19 In
thea diagram,
is theof production
have
high priceMN
elasticity
demand. possibility curve of a country that has a comparative
advantage in the production of good Y.
What effect is this likely to have on the prices paid for these goods by Japanese consumers and
on the revenues received by Malaysian producers?
M
change in prices paid
change in revenues
R
by Japanese
received by Malaysian
consumers
producers
quantity of
A
decrease good X
uncertain
B
decrease
increase
decrease
11
D
increase
uncertain
11
N
O
26 A developed country has a price-inelasticquantity
demandoffor
oil, Y
all of which it imports. The oil-producing
good
26 Acountries
developed
country
has a price-inelastic
decide
to provide
more oil to thedemand
market. for oil, all of which it imports. The oil-producing
countries
decide
to
provide
more
oil
to
the
market.
21 What
Which
statement
about
economic
integration
is quantities
correct? of X and Y indicated by point R?
might enable the country to consume the
What is likely to happen as a result in the developed country to inflation, its balance of trade and
AWhat
Aquantity
customs
union
has aascommon
currency.
is likelyof
to
result
in the developed
A
specialisation
ina the
production
of good Xcountry to inflation, its balance of trade and
theincreased
oilhappen
demanded?
the quantity of oil demanded?
B international
A customs union
B
tradehas a common external tariff.
quantity of oil
inflation
balance
trade
C aA reduction
free trade
has internal
tradeofbarriers.
quantity
of oil
demanded
C
inarea
unemployment
inflation
balance of trade
demanded
D increased
A free trade
area has noin
external
trade barriers.
D
specialisation
theimproves
production
of good Y rises
A
less
likely
A
less likely
improves
rises
B
less likely
worsens
rises
B 2000 aless
likely export prices
worsens
22 Since
countrys
have increased onrises
average by 50 % and its import prices by
C
more likely
improves
falls
25 %.
C
more likely
improves
falls
D
more likely
worsens
falls
What
figure for the countrys
(2000 = 100)?
D is the current
more likely
worsens terms of tradefalls
C
increase
A 75
B 83
C 120
D 125
27 Why is it that a countrys balance of payments must always balance?
27 Why is it that a countrys balance of payments must always balance?
A will
Exchange
rate
changes rise
will correct
anyof
deficit
or surplus.
23 What
cause an
immediate
in the size
a countrys
labour force?
A Exchange rate changes will correct any deficit or surplus.
B One countrys deficit is matched by anothers surplus.
AB an
increase
in the
birthisrate
One
countrys
deficit
matched by anothers surplus.
C The current account is balanced by the capital and financial accounts.
BC an
increase
in
the
age
of
retirement
The current account is balanced
by the capital and financial accounts.
D
The
government
must
act
to
correct
C an increase in the school-leaving age any disequilibrium.
D The government must act to correct any disequilibrium.
UCLES 2009
9708/01/M/J/09
D an increase in the number of redundancies
28 In the diagram, D1D1 and S1S1 are the initial demand and supply curves of the pound sterling ()
S1S1 are the initial demand and supply curves of the pound sterling ()
28 In
D1D1 andmarket.
onthe
thediagram,
foreign exchange
on the foreign exchange market.
D2
D
D1 2
D1
price of
S2
S2 S
1
S1
21
Difficult
MCQs
from
B
2003
to
2009
A EGP 75
EGP 80
By:
Ali
Anwerzada
EGP 120
EGP 125
30 A country has a large current account deficit. Its government decides to devalue its currency.
3
In which circumstance would such a measure reduce the deficit?
3 The diagram shows a persons marginal costs and marginal benefits of making trips to the
cinema. price elasticity of
price elasticity of
demand for exports
0.0
0.0
0.0
0.5
0.5
0.5
costs,
benefits
($)
0.5
marginal cost
1.0
Nov
2009
marginal benefit
The diagram shows a persons marginal costs and marginal benefits of making trips to the
cinema.
0
1
2
3
4
number of trips
costs,
One, as this maximises
the excess of marginal benefit over marginal cost.
marginal cost
benefits
Two, as this maximises
($) the net benefit of making trips.
marginal benefit
A change in market conditions causes a reduction in supply. This results in a higher price for the
product, which has a downward-sloping
0
1demand
2 curve.
3
4
number of trips
What must be the outcome of this higher price?
tripsinwill
person
make? in the industry
A How
anmany
increase
thethe
factors
employed
as each
extra trip revenue
reduces marginal benefit.
B A anNone,
increase
in producers
as this
maximises
excess of marginal benefit over marginal cost.
C B a One,
reduction
in the
quantitythe
demanded
as this
maximises
benefit of making trips.
D C a Two,
reduction
in the
demandthe
fornet
substitutes
D
Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
reasonable
effort has been made
by the publisher
(UCLES)
trace
copyright
holders,
if any
items
requiring clearance
been included,
the
5 A government
wishes
to impose
a totax
on
a good
so but
that
the
consumer
and have
notunwittingly
the producer
pays
publisher will be pleased to make amends at the earliest possible opportunity.
of the tax
increase.
4 most
A change
in market
conditions causes a reduction in supply. This results in a higher price for the
University of Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of
whichSyndicate
has a (UCLES),
downward-sloping
demand
Cambridgeproduct,
Local Examinations
which is itself a department
of thecurve.
University of Cambridge.
9708/01/M/J/09
anprice
increase
in theoffactors
B A low
elasticity
supplyemployed in the industry
an increase
in producers
revenue
C B unitary
price elasticity
of supply
a reduction
in theprice
quantity
demanded
D C perfectly
inelastic
elasticity
of supply
D
A government wishes to impose a tax on a good so that the consumer and not the producer pays
the tax increase.
9708/12/O/N/09
[Turn over
most
UCLES
2009 of
22
Difficult
MCQs
from
2003
to
2009
D motor
cycles
only
By:
Ali
Anwerzada
7
8
5
Two goods, X and Y, are complementary goods. Column 1 of the table below shows the original
market
situation
at timeupon
period
1 and
column
2 shows
theInsituation
following
increase
the
A
specific
tax is placed
each
bottle
of perfume
sold.
the diagram,
SS isanthe
supply in
curve
price oftax,
good
before
StSY.
t the supply curve after tax.
1
St
10
price of good X
quantity demandedW
R
price
price of good Y
U
Q
quantity
P demanded T
St
50
10
S
40
20
30
80
60
D
The value of cross elasticity of demand
S for good X with respect to the price of good Y lies
between
O
Y Z
quantity
A 1.7 and 2.6.
B 0.8
and
1.3.
Which
area
represents
the revenue received by the government from the tax?
C
A
PQUT
PRWT
QRWU
The table shows the maximum price a consumer would be willing to pay for successive cans of
fruit juice.
cans
first
second
third
fourth
fifth
price ($)
14
10
The price of a can of fruit juice is $4 and, having bought three cans, the consumer decides to buy
a fourth.
How does buying the fourth can affect his consumer surplus?
A
It leaves it unchanged.
UCLES
B 2009
It lowers
it by $2.
It raises it by $4.
It raises it by $34.
9708/12/O/N/09
10 What is generally considered to be one of the advantages of using the price mechanism as a
rationing device?
A
It ensures that goods are allocated in accordance with the needs of consumers.
No one can be prevented from consuming a good if they are willing and able to pay the
market price.
UCLES 2009
9708/12/O/N/09
[Turn over
23
17 The government places a maximum price P1 on an agricultural product. The supply and demand
conditions for this product are shown.
S
66
11 The
The demand
demand curve
curve in
in the
the diagram shows the relationship between the number of car journeys
11
price diagram shows the relationship between the number of car journeys
and
the
cost
of
a
car
journey.
and the cost of a car journey.
D
O
quantity
cost of a
cost of a
carthe
journey
What will be the outcome car
in
market for this product?
journey
There will be an equilibrium price and output.
D
D
BC
CD
Do Build.
not build.
Do
Do not
not build.
build.
Social
are
greater
than
benefits.
Privatebenefits
costs are
greater
than
theprivate
external
benefits.
9708/12/O/N/09
Private
costsare
aregreater
greaterthan
thanthe
thesocial
external
benefits.
Social costs
benefits.
Do not build.
UCLES 2009
UCLES 2009
UCLES 2009
9708/12/O/N/09
9708/12/O/N/09
24